enrichardduncaneconomicsRichard Duncan Economicshttps://www.richardduncaneconomics.com
The US EconomyThu, 30 Jul 2015 05:46:37 +0000en-UShourly1GLOBAL RECESSION: Sudden and Severehttps://www.richardduncaneconomics.com/global-recession-sudden-and-severe/
https://www.richardduncaneconomics.com/global-recession-sudden-and-severe/#commentsFri, 24 Jul 2015 12:57:39 +0000https://www.richardduncaneconomics.com/?p=4155The global economy appears to be moving rapidly back into recession. Commodity prices have crashed to a 13-year low, world industrial production has begun to fall and world trade is contracting. In fact, measured in dollar terms, world trade is collapsing! In the latest Macro Watch video, uploaded today, we take a close look at the rapidly deflating global economic bubble and consider how much worse things are likely to become from here.
This worldwide slump should not come as a surprise. Its causes are all well understood:

The US economy is weak because credit growth remains too depressed to generate economic growth there.

Consequently, the US current account deficit is no longer acting as a driver of global growth.

China’s enormous economic bubble is now deflating rapidly.

There is excess capacity across nearly every industry globally since the growth in effective demand (i.e. wage growth) has lagged far behind the increase in the supply of goods.

The Fed has tightened monetary policy by ending QE 3, causing the dollar to strengthen. The strong dollar has pushed down global commodity prices and hammered the commodity producing countries.

All of these problems are going to persist. Therefore, the global economic downturn seems very likely to become considerably deeper and more painful. This video describes how this slump is likely to play out from here. It also flags some silver lining, profit-making opportunities that should arise before this cycle is through.
If you are a Macro Watch member, log in now and watch “Global Recession”.
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: recession
You will find more than 16 hours of video content available to watch immediately, including two video courses:

The Global Economic Crisis Explained, and

How The Economy Really Works

A new Macro Watch video will be added approximately every two weeks.]]>The global economy appears to be moving rapidly back into recession. Commodity prices have crashed to a 13-year low, world industrial production has begun to fall and world trade is contracting. In fact, measured in dollar terms, world trade is collapsing! In the latest Macro Watch video, uploaded today, we take a close look at the rapidly deflating global economic bubble and consider how much worse things are likely to become from here.
This worldwide slump should not come as a surprise. Its causes are all well understood:

The US economy is weak because credit growth remains too depressed to generate economic growth there.

Consequently, the US current account deficit is no longer acting as a driver of global growth.

China’s enormous economic bubble is now deflating rapidly.

There is excess capacity across nearly every industry globally since the growth in effective demand (i.e. wage growth) has lagged far behind the increase in the supply of goods.

The Fed has tightened monetary policy by ending QE 3, causing the dollar to strengthen. The strong dollar has pushed down global commodity prices and hammered the commodity producing countries.

All of these problems are going to persist. Therefore, the global economic downturn seems very likely to become considerably deeper and more painful. This video describes how this slump is likely to play out from here. It also flags some silver lining, profit-making opportunities that should arise before this cycle is through.
If you are a Macro Watch member, log in now and watch “Global Recession”.
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: recession
You will find more than 16 hours of video content available to watch immediately, including two video courses:

The Global Economic Crisis Explained, and

How The Economy Really Works

A new Macro Watch video will be added approximately every two weeks.]]>https://www.richardduncaneconomics.com/global-recession-sudden-and-severe/feed/0Unsustainable Wealthhttps://www.richardduncaneconomics.com/unsustainable-wealth/
https://www.richardduncaneconomics.com/unsustainable-wealth/#commentsFri, 10 Jul 2015 08:15:48 +0000https://www.richardduncaneconomics.com/?p=4088US Household Sector Net Worth has risen by a mind-boggling $30 trillion since the first quarter of 2009. At $85 trillion, it is now 55% higher than at the depth of the crisis – and 25% above its pre-crisis peak. This is how the Fed has made the economy grow: by inflating asset prices. But this is unsustainable wealth. Much of it will evaporate if interest rates begin to rise. In fact, I believe this level of wealth cannot be sustained without further rounds of Quantitative Easing. The latest Macro Watch video presents the details.

We begin by looking at the kind of assets the household sector owns.

We then see how much the value of each type of asset has risen in recent years, what has driven that increase and how each type of asset would be impacted by an increase in interest rates.

This Wealth did not come from savings. It was created by asset price inflation, fuelled by Quantitative Easing and nearly seven years of 0% interest rates.

Asset values are now very stretched relative to income and highly vulnerable to a shock.

If the Fed begins to hike interest rates, Wealth is very likely to contract and throw the economy into severe recession.

On the other hand, if the Fed doesn’t hike rates, the bubble in asset prices will continue to inflate, leading ultimately – in all probability - to a new systemic crisis in the financial sector.

If you are a Macro Watch member, log in now and watch “Unsustainable Wealth”.
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: wealth
You will find more than 16 hours of video content available to watch immediately, including two video courses:

The Global Economic Crisis Explained, and

How The Economy Really Works

A new Macro Watch video will be added approximately every two weeks.]]>US Household Sector Net Worth has risen by a mind-boggling $30 trillion since the first quarter of 2009. At $85 trillion, it is now 55% higher than at the depth of the crisis – and 25% above its pre-crisis peak. This is how the Fed has made the economy grow: by inflating asset prices. But this is unsustainable wealth. Much of it will evaporate if interest rates begin to rise. In fact, I believe this level of wealth cannot be sustained without further rounds of Quantitative Easing. The latest Macro Watch video presents the details.

We begin by looking at the kind of assets the household sector owns.

We then see how much the value of each type of asset has risen in recent years, what has driven that increase and how each type of asset would be impacted by an increase in interest rates.

This Wealth did not come from savings. It was created by asset price inflation, fuelled by Quantitative Easing and nearly seven years of 0% interest rates.

Asset values are now very stretched relative to income and highly vulnerable to a shock.

If the Fed begins to hike interest rates, Wealth is very likely to contract and throw the economy into severe recession.

On the other hand, if the Fed doesn’t hike rates, the bubble in asset prices will continue to inflate, leading ultimately – in all probability - to a new systemic crisis in the financial sector.

If you are a Macro Watch member, log in now and watch “Unsustainable Wealth”.
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: wealth
You will find more than 16 hours of video content available to watch immediately, including two video courses:

The Global Economic Crisis Explained, and

How The Economy Really Works

A new Macro Watch video will be added approximately every two weeks.]]>https://www.richardduncaneconomics.com/unsustainable-wealth/feed/2Credit Growth Slows, Vulnerabilities Increasehttps://www.richardduncaneconomics.com/credit-growth-slows-vulnerabilities-increase/
https://www.richardduncaneconomics.com/credit-growth-slows-vulnerabilities-increase/#commentsThu, 02 Jul 2015 11:05:49 +0000https://www.richardduncaneconomics.com/?p=3970In the 21st Century, when there is no longer any difference between money and credit, Credit Growth drives Economic Growth. In the new Macro Watch video, we look at who has been lending the money to fund the credit growth and where their money comes from. We then look ahead to see who will have to lend the money in the future.
What we discover is a growing risk of a new systemic banking sector crisis and an economy increasingly dependent on credit creation - rather than savings - to fund itself. These findings highlight just how vulnerable the economy and the financial markets are if the Fed now begins to increase interest rates.
You will also be interested to know that credit growth slowed again during the first quarter, which helps explain why the economy contracted by 0.2%.
If you are a Macro Watch member, log in now and watch “Who Will Lend The Money To Drive Economic Growth?”
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: lenders
You will find more than 16 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.]]>In the 21st Century, when there is no longer any difference between money and credit, Credit Growth drives Economic Growth. In the new Macro Watch video, we look at who has been lending the money to fund the credit growth and where their money comes from. We then look ahead to see who will have to lend the money in the future.
What we discover is a growing risk of a new systemic banking sector crisis and an economy increasingly dependent on credit creation - rather than savings - to fund itself. These findings highlight just how vulnerable the economy and the financial markets are if the Fed now begins to increase interest rates.
You will also be interested to know that credit growth slowed again during the first quarter, which helps explain why the economy contracted by 0.2%.
If you are a Macro Watch member, log in now and watch “Who Will Lend The Money To Drive Economic Growth?”
If you have not yet joined, click on the following link:
http://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: lenders
You will find more than 16 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.]]>https://www.richardduncaneconomics.com/credit-growth-slows-vulnerabilities-increase/feed/1Did You Know The Government Owns 60% Of All US Home Mortgages?https://www.richardduncaneconomics.com/did-you-know-the-government-owns-60-of-all-us-home-mortgages/
https://www.richardduncaneconomics.com/did-you-know-the-government-owns-60-of-all-us-home-mortgages/#commentsTue, 09 Jun 2015 11:37:05 +0000https://www.richardduncaneconomics.com/?p=3770It’s true. The US mortgage market has effectively been nationalized.
Here’s how it happened:

The Government-Sponsored Enterprises, primarily Fannie Mae and Freddie Mac, issued $7 trillion worth of debt and bought up $7 trillion worth of mortgages and other debt securities between 1987 and 2007.

They securitized most of the mortgages they acquired and sold them with a guarantee that the buyers would receive full payment of interest and principal.

Their multi-trillion dollar mortgage purchases pushed up home price and sparked off a bonanza of home equity extraction that drove economic growth in the US for years. It also blew the property market into a giant bubble.

In 2008 that bubble popped and Fannie and Freddie were taken over by the government to prevent their collapse.

In 2010, they were forced to consolidate the off-balance sheet entities over which they held effective control. This revealed that they had not really sold the majority of the mortgages they had bought, but just moved them into off-balance sheet investment vehicles.

As a result, the government now owns 60% of all US Home Mortgages, $6 trillion worth.

The latest Macro Watch video, uploaded today, lays out all the details of how this disaster came about. It also looks at: 1) how the Fed used Quantitative Easing to accumulate 22% of all GSE-related debt, 2) why the US economy remains weak now that the GSEs have been reined in and 3) why the Fed’s threats to raise interest rates could hammer the economy and the stock market.
If you are a Macro Watch member, log in now and watch How The Government Came To Own 60% Of All US Home Mortgages.
If you have not yet joined, click on the following link:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: fannie
You will find more than 16 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.]]>It’s true. The US mortgage market has effectively been nationalized.
Here’s how it happened:

The Government-Sponsored Enterprises, primarily Fannie Mae and Freddie Mac, issued $7 trillion worth of debt and bought up $7 trillion worth of mortgages and other debt securities between 1987 and 2007.

They securitized most of the mortgages they acquired and sold them with a guarantee that the buyers would receive full payment of interest and principal.

Their multi-trillion dollar mortgage purchases pushed up home price and sparked off a bonanza of home equity extraction that drove economic growth in the US for years. It also blew the property market into a giant bubble.

In 2008 that bubble popped and Fannie and Freddie were taken over by the government to prevent their collapse.

In 2010, they were forced to consolidate the off-balance sheet entities over which they held effective control. This revealed that they had not really sold the majority of the mortgages they had bought, but just moved them into off-balance sheet investment vehicles.

As a result, the government now owns 60% of all US Home Mortgages, $6 trillion worth.

The latest Macro Watch video, uploaded today, lays out all the details of how this disaster came about. It also looks at: 1) how the Fed used Quantitative Easing to accumulate 22% of all GSE-related debt, 2) why the US economy remains weak now that the GSEs have been reined in and 3) why the Fed’s threats to raise interest rates could hammer the economy and the stock market.
If you are a Macro Watch member, log in now and watch How The Government Came To Own 60% Of All US Home Mortgages.
If you have not yet joined, click on the following link:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: fannie
You will find more than 16 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.]]>https://www.richardduncaneconomics.com/did-you-know-the-government-owns-60-of-all-us-home-mortgages/feed/0A Good Overview Of The Global Economic Crisishttps://www.richardduncaneconomics.com/a-good-overview-of-the-global-economic-crisis/
https://www.richardduncaneconomics.com/a-good-overview-of-the-global-economic-crisis/#commentsSat, 30 May 2015 11:25:47 +0000https://www.richardduncaneconomics.com/?p=3726Please find here a link to a YouTube video showing a recent conversation I had with my friend Gordon T. Long of Macro Analytics. It provides a very good overview of my views on the causes of the global economic crisis, Quantitative Easing, Credit and the outlook for the economy, asset prices and government policy.
Click on the following link to watch:
<iframe width="480" height="270" src="https://www.youtube.com/embed/6-56D8E93nY" frameborder="0" allowfullscreen></iframe>
If you find this interview interesting, I hope you will share it with your friends and colleagues and ask them to sign up to receive my blog by email.]]>Please find here a link to a YouTube video showing a recent conversation I had with my friend Gordon T. Long of Macro Analytics. It provides a very good overview of my views on the causes of the global economic crisis, Quantitative Easing, Credit and the outlook for the economy, asset prices and government policy.
Click on the following link to watch:
<iframe width="480" height="270" src="https://www.youtube.com/embed/6-56D8E93nY" frameborder="0" allowfullscreen></iframe>
If you find this interview interesting, I hope you will share it with your friends and colleagues and ask them to sign up to receive my blog by email.]]>https://www.richardduncaneconomics.com/a-good-overview-of-the-global-economic-crisis/feed/0The Banks: How The Six Largest US Financial Holding Companies Make Moneyhttps://www.richardduncaneconomics.com/the-banks-how-the-six-largest-us-financial-holding-companies-make-money/
https://www.richardduncaneconomics.com/the-banks-how-the-six-largest-us-financial-holding-companies-make-money/#commentsWed, 27 May 2015 10:44:47 +0000https://www.richardduncaneconomics.com/?p=3714This week Macro Watch takes a close look at the six largest US Financial Holding Companies: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.
In 2014, these six institutions held $9.9 trillion in assets, earned $64 billion in profits and employed more than 1 million people. They also paid a record $33 billion in legal settlements related to a series of financial scandals. Nevertheless, at year-end, their market value exceeded $1 trillion.
In this video we examine their income statements and balance sheets to learn how they make their money. How much do they earn from lending? How much from investing? And how will their profits be impacted by The Volcker Rule – which bans proprietary trading – when it takes effect this July?
Have they become less risky in the years following their near-systemic collapse in 2008? Should we be concerned that their over-the-counter derivatives activity is measured in hundred of TRILLIONS of dollars? How will they be impacted by reforms designed to force all standardized derivatives to trade through exchanges? Which of these banks were involved in the LIBOR and Foreign Exchange manipulation scandals? How are their share prices performing?
Finally, what about bank regulation? Is the government regulating the banks or – as many believe – are the banks regulating the government?
These are some of the questions considered in this crash course on the six institutions that dominate American finance.
If you are a Macro Watch member, log in now and watch “The Banks”.
If you have not yet joined, click on the following link:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: banks
You will find more than 15 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.
]]>This week Macro Watch takes a close look at the six largest US Financial Holding Companies: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.
In 2014, these six institutions held $9.9 trillion in assets, earned $64 billion in profits and employed more than 1 million people. They also paid a record $33 billion in legal settlements related to a series of financial scandals. Nevertheless, at year-end, their market value exceeded $1 trillion.
In this video we examine their income statements and balance sheets to learn how they make their money. How much do they earn from lending? How much from investing? And how will their profits be impacted by The Volcker Rule – which bans proprietary trading – when it takes effect this July?
Have they become less risky in the years following their near-systemic collapse in 2008? Should we be concerned that their over-the-counter derivatives activity is measured in hundred of TRILLIONS of dollars? How will they be impacted by reforms designed to force all standardized derivatives to trade through exchanges? Which of these banks were involved in the LIBOR and Foreign Exchange manipulation scandals? How are their share prices performing?
Finally, what about bank regulation? Is the government regulating the banks or – as many believe – are the banks regulating the government?
These are some of the questions considered in this crash course on the six institutions that dominate American finance.
If you are a Macro Watch member, log in now and watch “The Banks”.
If you have not yet joined, click on the following link:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: banks
You will find more than 15 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.
]]>https://www.richardduncaneconomics.com/the-banks-how-the-six-largest-us-financial-holding-companies-make-money/feed/4Yellen’s Dilemma: Global Growth or US Growthhttps://www.richardduncaneconomics.com/yellens-dilemma-global-growth-or-us-growth/
https://www.richardduncaneconomics.com/yellens-dilemma-global-growth-or-us-growth/#commentsFri, 08 May 2015 08:12:28 +0000https://www.richardduncaneconomics.com/?p=3651The Fed faces a difficult choice. It must decide between boosting global economic growth or boosting US economic growth. If the Fed increases US interest rates, the Dollar will strengthen further. That would cause US exports to fall and imports into the US to increase. As a result, the US Current Account deficit would expand and resume its role as the driver of global economic growth. This course would cause the US economy to weaken further, however, as the strong Dollar would further erode the US manufacturing base, increase unemployment and reduce corporate profitability, perhaps leading to a sharp stock market selloff.
This is the latest manifestation of the Triffin Dilemma. In the 1960s, Yale economist Robert Triffin pointed out a serious problem related to using the Dollar as the international reserve currency. Under the Dollar Standard, other countries need US Dollar liquidity to achieve economic growth. That requires the United States to run a Current Account deficit to supply that liquidity. However, running large Current Account deficits over many years is harmful to the US economy.
US imports have not increased since the crisis of 2008. And now it is increasingly likely that they will begin to decrease because the Shale Oil Revolution is resulting in a very large reduction in US oil imports. That means total US imports will shrink and exacerbate the crisis in the global economy unless non-oil imports into the United States rise more than enough to offset the plunge in oil imports. The only way that could happen is if the value of the Dollar appreciates sharply.
If the Fed hikes interest rates, it will cause the Dollar to move sharply higher and that will boost the global economy – but at the price of damaging the US economy.
The Fed’s other option is to launch QE 4. Another round of Quantitative Easing would strengthen the US economy (at least in the short term) by weakening the Dollar, lowering interest rates, boosting asset prices and creating a positive wealth effect that boost consumption.
The new Macro Watch video, Yellen’s (Triffin) Dilemma, considers the global economy’s dependence on exporting to the United States. It then examines the options available to the Fed and considers the pros and cons of each. If the Fed choses Q4, the financial markets will perform summersaults as the existing bets on higher interest rates are rapidly reversed.
If you are a Macro Watch member, log in now and find out which option I think the Fed will chose.
If you are not yet a member, join here:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount, hit the “Sign Up Now” tab and, when prompted, use the coupon code: dilemma
You will find more than 15 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.
]]>The Fed faces a difficult choice. It must decide between boosting global economic growth or boosting US economic growth. If the Fed increases US interest rates, the Dollar will strengthen further. That would cause US exports to fall and imports into the US to increase. As a result, the US Current Account deficit would expand and resume its role as the driver of global economic growth. This course would cause the US economy to weaken further, however, as the strong Dollar would further erode the US manufacturing base, increase unemployment and reduce corporate profitability, perhaps leading to a sharp stock market selloff.
This is the latest manifestation of the Triffin Dilemma. In the 1960s, Yale economist Robert Triffin pointed out a serious problem related to using the Dollar as the international reserve currency. Under the Dollar Standard, other countries need US Dollar liquidity to achieve economic growth. That requires the United States to run a Current Account deficit to supply that liquidity. However, running large Current Account deficits over many years is harmful to the US economy.
US imports have not increased since the crisis of 2008. And now it is increasingly likely that they will begin to decrease because the Shale Oil Revolution is resulting in a very large reduction in US oil imports. That means total US imports will shrink and exacerbate the crisis in the global economy unless non-oil imports into the United States rise more than enough to offset the plunge in oil imports. The only way that could happen is if the value of the Dollar appreciates sharply.
If the Fed hikes interest rates, it will cause the Dollar to move sharply higher and that will boost the global economy – but at the price of damaging the US economy.
The Fed’s other option is to launch QE 4. Another round of Quantitative Easing would strengthen the US economy (at least in the short term) by weakening the Dollar, lowering interest rates, boosting asset prices and creating a positive wealth effect that boost consumption.
The new Macro Watch video, Yellen’s (Triffin) Dilemma, considers the global economy’s dependence on exporting to the United States. It then examines the options available to the Fed and considers the pros and cons of each. If the Fed choses Q4, the financial markets will perform summersaults as the existing bets on higher interest rates are rapidly reversed.
If you are a Macro Watch member, log in now and find out which option I think the Fed will chose.
If you are not yet a member, join here:
https://www.richardduncaneconomics.com/product/macro-watch/For a 50% subscription discount, hit the “Sign Up Now” tab and, when prompted, use the coupon code: dilemma
You will find more than 15 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.
]]>https://www.richardduncaneconomics.com/yellens-dilemma-global-growth-or-us-growth/feed/0Liquidity Gauge Warning: After mid-year, Look Out!https://www.richardduncaneconomics.com/liquidity-gauge-warning-after-mid-year-look-out/
https://www.richardduncaneconomics.com/liquidity-gauge-warning-after-mid-year-look-out/#commentsSat, 25 Apr 2015 11:35:30 +0000https://www.richardduncaneconomics.com/?p=3547Continue Reading ]]>Liquidity determines which way asset prices move. When there is excess liquidity, the price of stocks, bonds and property tends to rise. When liquidity is negative, the price of those assets tends to fall. After two years of excess liquidity – and rapidly appreciating asset prices – liquidity will turn negative in the second half of this year AND REMIAN NEGATIVE FOR THE NEXT FIVE YEARS!

This approaching liquidity drain is not only likely to cause a significant selloff in the financial markets, it is also likely to push the economy back into recession.

In the new Macro Watch video, uploaded today, we consider why liquidity matters and how to measure it using a Liquidity Gauge. I then update my projections for the Liquidity Gauge out to 2020, using two different sets of assumptions, the first based on the IMF’s forecasts for the US Current Account deficit, the second based on mine. Under both scenarios, liquidity will be negative every year.

Given this bleak outlook for liquidity, we’ll see that the only way stock prices could move higher is if interest rates move lower. The possibility that interest rates will fall significantly further can’t be ruled out, but if they do, it would most probably be as the result of the United States falling back into recession.

For investors, it is more important to understand liquidity than to understand the “economic fundamentals”. Watch this video and you will.

If you are a Macro Watch member, log in now and watch “The Liquidity Gauge Update”.

For a 50% subscription discount worth US$250, hit the “Sign Up Now” tab and, when prompted, use the coupon code: gauge

You will find more than 15 hours of Macro Watch videos available to watch immediately. A new video will be added approximately every two weeks.

]]>https://www.richardduncaneconomics.com/liquidity-gauge-warning-after-mid-year-look-out/feed/6Watch Free Video: QE Is Debt Cancellationhttps://www.richardduncaneconomics.com/watch-free-video-qe-is-debt-cancellation/
https://www.richardduncaneconomics.com/watch-free-video-qe-is-debt-cancellation/#commentsThu, 16 Apr 2015 10:18:04 +0000https://www.richardduncaneconomics.com/?p=3494Continue Reading ]]>Yesterday, I send a blog with a link to a new CNBC interview and a second link to a free video explaining the details of how central banks have effectively cancelled trillions of dollars of government debt and are in the process of cancelling trillions more. The link to the second video did not work, so I am sending it again today. I think this is exceptionally important and I hope you will watch it and share it. Here’s the link:

If it still does not work, just Google “YouTube QE Is Debt Cancellation” and it will pop up.

If you would prefer to read about it, read on:

When a central bank creates money and buys a government bond, it is the same thing as cancelling that bond – so long as the central bank does not sell the bond and so long as it rolls it over when the bond matures. That means the United States, the UK and Japan have far less government debt than is generally understood. The same will soon be true for the Eurozone governments. This has important policy implications that the world cannot afford to ignore.

The Federal Reserve has acquired $2.5 trillion of US government securities, nearly 14% of all US government debt. The US Treasury Department pays interest on that debt to the Fed. Then, at the end of every year, the Fed turns around and gives its profits to the Treasury, including the profits from the interest income earned on its government debt holdings. Last year, the US central bank gave the US government $97 billion, reducing the budget deficit by nearly 20%. It has given the government $500 billion since 2008. In other words, on the bonds held by the Fed, the government is paying interest to itself, which is the same thing as not paying any interest. Bonds that do not pay interest have been effectively cancelled. Seen in this light, the ratio of government debt to GDP in the United States is not 105%. It is 89%.

The UK government is paying interest to itself on the £375 billion of government debt owned by the Bank of England. That is 24% of all UK government debt. Since the Bank of England is unlikely to ever sell those bonds the ratio of government debt to GDP in the UK is actually 70%, rather than 92%, as it is now reported to be.

The Bank of Japan owns Japanese government bonds equivalent to 53% of GDP and it is acquiring new government bonds at roughly twice the pace that the government is selling them. When it is understood that Quantitative Easing is debt cancellation, the BOJ’s very aggressive QQE program makes sense. It may be the only way to prevent a fiscal crisis in Japan, where government debt is reported to be 245% of GDP. The more government debt acquired (and effectively cancelled) by the central bank, the less likely a fiscal crisis will be.

Fiat money creation on a large scale was supposed to cause very high rates of inflation, or even hyperinflation. It hasn’t because it has taken place at the same time that Globalization has been driving down the cost of labor in the developed economies. Under the Bretton Woods system, when trade between nations had to balance, aggressive fiat money creation would have over-stimulated the US economy (for instance), quickly leading to full employment, full capacity utilization and wage-push inflation. Under the Dollar Standard, trade no longer has to balance; so all domestic bottlenecks can be circumvented by buying from abroad. In our new global economy, two billion people live on less than $3 per day. That means we will not hit capacity constraints in labor, leading to wage inflation, for decades. And that, as the history of the past six years demonstrates, means that the central banks of the developed economies can create money and finance massive government budget deficits without causing inflation.

This combination of fiat money and Globalization under the Dollar Standard creates a once-in-history opportunity. The government debt owned by the central banks should be held permanently and perpetually rolled over, effectively cancelling it. It would then be clear that governments really have much less debt than is generally understood. The governments of the developed nations could then borrow more and invest that money in new industries and technologies to restructure their economies and to retrain and educate their workforce at the post-graduate level to ensure that the standard of living in the developed world continues to improve, rather than sinking down to third world levels. Furthermore, large investments in green technologies could be financed with GQE, Green Quantitative Easing, perhaps preventing an environmental catastrophe.

Heretical as it may appear at first impression, Quantitative Easing has already effectively cancelled trillions of dollars of government debt without causing inflation. At the very least, this fact completely undermines the case in favor of further growth retarding fiscal austerity. If this opportunity were fully exploited, investments could be financed that would not only restore global growth but that would also improve the wellbeing of everyone on this planet.

]]>https://www.richardduncaneconomics.com/watch-free-video-qe-is-debt-cancellation/feed/1New CNBC Interview: QE Is Debt Cancellationhttps://www.richardduncaneconomics.com/new-cnbc-interview-qe-is-debt-cancellation/
https://www.richardduncaneconomics.com/new-cnbc-interview-qe-is-debt-cancellation/#commentsWed, 15 Apr 2015 07:17:25 +0000https://www.richardduncaneconomics.com/?p=3487Continue Reading ]]>This morning I was interviewed on CNBC Asia in Hong Kong. We discussed how central banks around the world are effectively cancelling trillions of dollars worth of government debt. Here’s the link to the interview:

This is a very important subject with incredibly important policy implication, but few people understand it. I hope you will also watch the Macro Watch video that explains how this works in detail. Just click on the video image below (no password or membership required):

Finally, if you have not yet subscribed to Macro Watch, you should. Click on the link below. For a 50% discount, when prompted, use the coupon code: cnbc